Rewriting the Script

By Jeff Green

In a recent interview, Walgreens’ CEO Greg Wasson spoke at length about the ways in which the drug store chain is evolving. I thought the interview (posted online under the title Walgreens gets a modern makeover), was fascinating, particularly where Wasson explained the company’s bold plans to “reimagine” its stores.

Exactly how bold are they? The very first question posed by interviewer and Fortune Magazine editor-at-large Geoff Colvin suggests that Walgreens is “changing the very meaning of the corner drugstore.” That might be a little bit of an exaggeration, but there’s no doubt in my mind that Walgreens is at least a step ahead of the competition.

Prompted by the upcoming implementation of the Affordable Care Act (ACA) and citing a desire to “step out of the traditional drugstore format,” Walgreens will soon begin offering a significantly expanded range of medical services. In addition to making sure that Walgreens stores have the infrastructure and personnel available to handle the anticipated increase in prescription traffic once the ACA goes effect, the drugstore chain will also be adding dedicated nurse practitioners to more stores. Together with the availability of immunizations and vaccinations (as well as health screenings like cholesterol testing and blood pressure monitoring) that Walgreens helped to popularize, it seems clear that Wasson’s vision is the corner pharmacy becoming more like a fully functional community clinic.

While the medical expansion was interesting, the most fascinating part of the interview was Wasson’s description of what Walgreens has planned for its non-pharmaceutical offerings. In a big move aimed at boosting their front-end sales and driving customer traffic, Walgreens is going to be introducing more fresh and prepared food in addition to their current convenience-oriented offerings. Cosmetics will also be going upscale, with a new and expanded cosmetics “department.” In a few test stores, Walgreens has pulled out all the stops: the new San Francisco Walgreens on Market Street even has a sushi bar!

By presenting merchandise much more like an upscale supermarket — which also includes higher-end lighting and more sophisticated presentation — parts of many Walgreens stores are going to be looking less like a drug store and more like a neighborhood supermarket or an upscale convenience store. Wasson also talked about responding to an increased customer focus on value by “accelerating” Walgreens’ private-brand offerings, and taking advantage of changing consumer shopping habits for groceries and consumables. In the interview, he mentions a statistic that says that “60% of the people in this country responsible for tonight's meal do not know what it is [going to be] at 10 a.m.”

From a broader retail perspective, what do we make of these changes?

Walgreens isn’t the only retailer looking to innovate by broadening its products and services. Plenty of brands, most notably Target and Wal-Mart, have been moving in that direction. It’s also not entirely unlike the store-within-a-store concept that some other brands and retail categories (department stores, and even Best Buy) have experimented with recently. But this is still a pretty bold move, especially for a retail sector where prescription business typically makes up somewhere between 60% and 70% of a pharmacy’s overall sales. The other reason this is such a big deal is because Walgreens is clearly the 500-pound gorilla in the pharmacy sector — with 8,300 locations (including Duane Reade and a few regional brands), Walgreens is the nation’s largest retail pharmacy chain, and anything they do is going to have a profound impact as it ripples through the competition.

Fundamentally, I see this is as a good thing; the only possible downside would be if these moves somehow take away from their prescription traffic, but I don’t see much danger of that happening with Walgreens. If you take a step back, it does seem to be part of a broader pattern of retailers finding new and creative ways to make the best use of the assets they already have in place to drive more traffic and broaden their appeal. In the case of Walgreens, perhaps the most significant of those assets is real estate. They already have these great locations (which, in the pharmaceutical sector, the brands sometimes own, in stark contrast to most other retailers who usually lease). It’s just about leveraging that value. They have already paid the big bucks for the access and visibility advantage that comes with being a freestanding store on a hard corner; they just need to maximize those advantages by making a concerted effort to get people to come in more often — not just for prescriptions.

Drug stores have kind of understood the value of diversifying their offerings for some time, but I think Walgreens’ plans are clearly taking it to the next level. Given the brand track record, however, I have to say that I think it’s got a good chance of working out for them. What do you think? Can you envision a future where more and more people are swinging by the drugstore on their way home from work to pick up something for dinner? Let’s keep the conversation going! I always appreciate your comments below, or through Jeff@JeffGreenPartners.com.